Why Losing Market Share In India Will Not Impact McDonald’s

McDonald’s‘ (NYSE:MCD) woes in India continue. The company is fighting a long legal battle with its franchisee in Northern India which led to the closure of a majority of the company’s restaurants in the region. While the franchisee tried to keep several restaurants open despite the dispute, McDonald’s faced notices on the quality of food served in these restaurants. This dispute has impacted McDonald’s market share in India and reports suggest that between June and July 2017 the company’s market share in India fell from 9% to 3%. Competitors such as Burger King and Subway have benefited from this battle and gained significant market share in the country.

However, despite a significant decline in its market share in the country, McDonald’s’ valuation will not be impacted due to a loss of revenues in India. India is a small market for the company and contributes immaterially to its revenues. While McDonald’s will lose a long term growth opportunity in a market which is growing exponentially, its valuation is not likely to be impacted in the near future due to this loss of market share in India.

You can click here to access our interactive model to analyze the impact of a loss of market share in India on McDonald’s’ valuation.

Revenues from India are not material for McDonald’s which generates more than $20 billion in revenues every year and the India opportunity currently, even with a 7% market share, is around $200 million. India is a part of the “Foundation Markets and Corporate” segment of McDonald’s and this segment generates more than $1 billion in revenues every year. Even in a scenario of exponential growth in the Indian QSR market over the next few years, revenues from this region are not very significant for McDonald’s.

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